Vanguard has a new research paper on
The whitepaper has a lot of math and investment jargon that you can read for yourself. Let’s skip to the conclusion here:
Historical cumulative returns of individual stocks are skewed whereby overall market returns are determined by a small minority of stocks. Therefore, all else being equal, a more diversified portfolio is more likely to hold these outperforming stocks while displaying a lower dispersion of portfolio returns. We conducted simulations of various portfolio sizes and showed that those portfolios with fewer holdings underperformed those with more holdings, leading to a higher return hurdle to overcome.
As the late Jack Bogle told us: “Don’t look for the needle in the haystack. Just buy the haystack.”
I don’t know which will be the most successful US companies in the future, but I know that I will own them via the
Now, when you own the entire haystack, you will get the losers as well as the winners. Also, I won’t be as rich as if I invested in them when operated out of a dorm room. It just turns out that in this capitalist structure, owning them all still works out pretty darn well. I will own shares of all these businesses in proportion to their market value, and by extension a share of their profits. Some of those profits will be reinvested for future growth, and some will be sent to me as cash dividends every three months. I’ll happily
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